Higher demand drives record quarterly bookings for realty majors

Higher sales, improving cash flows are expected to drive further debt reduction for the sector

Quarterly sales updates by realty companies indicate that demand trends for both residential and commercial segments continue to remain strong. While Macrotech Developers (Lodha) and Sobha registered their highest ever quarterly bookings in the December quarter for the 2022-23 financial year (Q3FY23), Phoenix Mills’ like-for-like performance reflects strong consumption trends.

Macrotech posted a 16 per cent growth in pre-sales or bookings to Rs 3,035 crore taking the total bookings for the first nine months of FY23 to Rs 9,039 crore. Sales in FY23, so far, have already exceeded those in FY22 by 62 per cent. The company indicated that it is on track to meet its guidance for the full year of Rs 11,500 crore. The pipeline for the company also remains strong, given the ongoing project additions.

Commenting on the business development and bookings, Adhidev Chattopadhyay of ICICI Securities says that the company’s policy of marginal price increases and the provision of partial developer subvention for interest rate increase beyond 6.99 per cent up to June 2024 to mitigate mortgage rate risk (capped at 150 basis points or 8.5 per cent) appears to be bearing fruit.

The company has reduced the net debt in the quarter by Rs 753 crore to Rs  8,042 crore. This was on the back of a 13 per cent quarter-on-quarter (QoQ) increase (26 per cent year-on-year) in collections and lower interest payments. The company wants to bring net debt in FY23 to below Rs 6,000-crore levels and its ability to achieve the same will depend on cash flow and asset monetisation trajectory.

In addition to deleveraging, project acquisition through the joint development route and bookings momentum, cash repatriation from Macrotech’s London projects should accelerate, believes Morgan Stanley Research. While the brokerage has an equal-weight stance on the stock, ICICI Securities continues to maintain a ‘buy’ rating.

For Sobha, Q3FY23 was its best quarter ever as far as bookings were concerned, both by volume and value. Sales volumes were up by 10.4 per cent on a sequential basis and 11.6 per cent over the year-ago period while in value terms, it came in at Rs 1,425 crore, up 22 per cent QoQ and 36 per cent YoY. The performance was better than Street expectations and was largely driven by momentum in ongoing projects and new launch (Sobha City) in the Gurugram (NCR) market.

Gurugram accounted for about 25 per cent of overall volumes in the quarter. Higher contribution of the NCR market meant that sales volumes from the Bengaluru market, which had averaged over 1 million square feet over the last few quarters, slipped below that mark -- at 0.89 million square feet. Its share of the overall volumes, according to Motilal Oswal Research, has slipped to 60 per cent from an average 74 per cent for the trailing twelve months due to higher NCR contribution.

After the sales update, Morgan Stanley Research highlighted that the company continues to deliver on new launches, strong pre-sales and deleveraging goals. This, coupled with inexpensive valuation has led to an ‘overweight’ rating on the stock.

For Phoenix Mills, which is India's largest listed mall operator, the consumption trends remained strong in December. It reported that retail consumption last month was 122 per cent of December 2019 levels. Excluding the malls launched over the last couple of years, the like-to-like consumption was 108 per cent of December 2019 levels. The office portfolio too is witnessing good leasing momentum, with gross leasing of 3 lakh square feet year to date, equally split between new leasing and renewals.

In the hospitality segment, St Regis Hotel in Mumbai and Courtyard by Marriott, Agra reported their highest ever gross revenue with significant improvement in occupancy and room rents.

ICICI Securities, which has a ‘buy’ rating on Phoenix, expects it to achieve a 17 per cent annual rental income growth, excluding the Kolkata asset over the FY20-25 period, resulting in Rs 2,240 crore of rental income in FY25, compared to Rs 1,030 crore in FY20.